Navigating Market Turbulence: Your Q2 2025 Economic Update
We’ve certainly had a wild ride here in our Newcastle office in the second quarter of 2025. As your financial advisors, we’ve been keeping a close eye on the global markets and what it means for your investments and goals.
A Quarter of Contrasts
April-June was a big quarter of contrasts. We saw good news on inflation at home, but global events reminded us why diversification and professional advice are key to successful wealth management.
Global Tensions Impact Market Sentiment
The conflict between Israel and Iran in mid-June sent shockwaves through international markets. Oil prices spiked initially but have since stabilised, and the US dollar hit a three-year low as bond yields rose.
For Australian investors, experts say a prolonged Middle East conflict could slow our growth by 0.2% if oil supply chains are disrupted. The US bombing of Iranian nuclear facilities has added another layer of uncertainty to an already volatile situation.
Trade Wars are Back
President Trump’s decision to impose tariffs on all countries in April, followed by a 90-day reprieve for European goods, has created a lot of uncertainty for global trade. With the European pause expiring on August 1st and no trade deal in sight, we’re preparing for tariffs of up to 50% on some goods.
The European Commission has already prepared retaliatory measures of €95 billio, so we could be in for a long trade war that affects global supply chains and investment returns.
Domestic Interest Rate Relief
Some good news for Australian borrowers and savers. The RBA cut rates by 0.25% in May to 3.85%. That’s the second cut this year and reflects the RBA’s view that inflation is back under control.
This rate environment presents opportunities and challenges for your financial planning. Lower rates can boost asset prices but will impact income from term deposits and conservative investments.
Inflation is Still a Challenge
Despite the rate cut, fuel prices jumped 10-15 cents a litre almost overnight after the Middle East conflict. Oil is still a key driver of inflation, and we’re watching closely as the government’s temporary wholesale gas price cap expires this month.
Investment Performance
Australian shares returned 1.3% for the quarter, but that masks the wild ride your portfolios went on. The ASX/S&P 200 fell over 10% in early April and then surged over 20% by June 30th – a classic example of why staying the course with a diversified strategy is key.
US markets followed a similar pattern, with strong recovery from April’s lows being the best quarterly performance of the year.
Housing Market
National house prices continued to rise for the fifth consecutive month in June. Here in Newcastle and across Australia, buyer confidence is returning after the May rate cut, but affordability is still a challenge.
The fundamental supply-demand imbalance is still supporting prices, with buyer demand still exceeding stock in most markets.
Employment and Consumer
Australia’s unemployment rate remained at 3.8% in May, near historic lows, with job vacancies still high. Consumer confidence improved modestly in June, but households are still feeling the pinch from cost-of-living pressures.
What This Means for Your Plan
As we head into the third quarter, several things will impact your investment strategy:
Interest Rate Environment: The RBA and Federal Reserve have big decisions ahead of them. We’ll be watching their comments closely and adjusting our portfolios accordingly.
Geopolitical Risks: The Middle East and potential trade war escalation require careful risk management in your portfolios.
Reporting Season: August is the company earnings season, so we’ll get insight into how businesses are navigating the current environment and their outlook for the rest of 2025.
Market Volatility: The wild price swings we’ve seen remind us to maintain the right asset allocation and not make emotional investment decisions during turbulent times.
Our Approach
In this uncertain environment, we’ll stick to our disciplined approach. We’ll:
- Maintain diversification across asset classes and geographies
- Rebalance portfolios regularly to take advantage of volatility
- Stress test portfolios against different scenarios
- Keep cash reserves for opportunities and peace of mind
What’s Next
Get in touch with us to review your situation. We’ll review your current portfolio and make sure your investment strategy is on track for your goals.
Market volatility is scary, but history shows us that having a solid financial plan and working with experts helps us get through these times.
